Malaysia's economy is showing resilience, with a 6% GDP growth rate in the second quarter of 2026 (2Q26) surpassing government and market expectations. This positive performance is attributed to robust electrical and electronic (E&E) shipments, driven by artificial intelligence (AI) demand and geopolitical stockpiling. However, amidst this growth, a sense of caution prevails, with Bank Negara Malaysia (BNM) governor Datuk Seri Abdul Rasheed Ghaffour emphasizing the central bank's projected GDP growth of 4% to 5% for the entire year. Economists' views are divided, with some upgrading their projections and others maintaining their forecasts. The consensus, however, is that growth has peaked and will decelerate in the second half of the year (2H26).
The acceleration in 2Q26 growth is attributed to net exports and a mining rebound, with services growth led by the finance and insurance subsector. Domestic demand, however, eased to 5.1%, indicating a potential slowdown in the second half. CIMB Research predicts a moderation in growth during 2H26 due to high base effects from the previous year and the ongoing Middle East conflict, which impacts domestic sentiment and activity. The research house also anticipates the benchmark overnight policy rate (OPR) to remain at 2.75% through the first half of 2027, with a hike contingent on inflation or broader-based growth.
MBSB Research has upgraded its GDP growth forecast to 5.1%, citing growth in the first half of 2026 and the anchoring role of domestic demand. It expects tourism activity and higher incomes to sustain growth, with inflation generally under control. However, the research firm warns of potential risks, including escalated geopolitical tensions, prolonged trade disruptions, higher inflation, tighter trade rules, and weaker final demand. Kenanga Research, on the other hand, sees limited justification for policy tightening, maintaining the OPR at 2.75% to support economic expansion while preserving flexibility for inflation and global economic shifts.
Kenanga Research has upgraded its GDP growth forecast to 5.3%, anticipating a moderation from the strong 2Q26 momentum. It highlights the diversified export structure, which provides a buffer against weaker global demand, particularly in the E&E subsectors benefiting from digitalisation, AI, and the global technology cycle. BIMB Research, in its upgraded forecast of 5.5%, emphasizes the country's strong performance, attributing it to the AI-led technology upcycle boosting E&E manufacturing and exports. The research house also notes the continued support from tourism and private sector investments in data centres, industrial parks, factories, and warehouses, despite potential softening in construction activity due to fiscal recalibration.
In conclusion, Malaysia's economy demonstrates resilience, with growth supported by E&E shipments, tourism, and private investments. However, the second half of 2026 may witness a slowdown due to base effects and potential risks. The country's diversified export structure and ongoing technological advancements position it favorably, but policymakers must remain vigilant to ensure sustained economic growth and address potential challenges.
